Spurious Correlation

AAA

DEFINITION of 'Spurious Correlation'

A false presumption that two variables are correlated when in reality they are not. Spurious correlation is often a result of a third factor that is not apparent at the time of examination. Spurious comes from the Latin word spurious, which means illegitimate or false.

INVESTOPEDIA EXPLAINS 'Spurious Correlation'

According to the skirt length theory, many people believe that short skirts are used to predict that the markets are going up. And if skirt lengths are long, that it means the markets are going down. Some would argue that this is a spurious correlation and that each event occurs because of a random third variable such as warmer-than-expected weather or income levels.

RELATED TERMS
  1. Positive Correlation

    A relationship between two variables in which both variables ...
  2. Stepwise Regression

    The step-by-step iterative construction of a regression model ...
  3. Aspirin Count Theory

    A market theory that states stock prices and aspirin production ...
  4. Correlation

    In the world of finance, a statistical measure of how two securities ...
  5. Leading Lipstick Indicator

    An indicator based on the theory that a consumer turns to less ...
  6. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock ...
Related Articles
  1. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  2. Economic Indicators To Know
    Retirement

    Economic Indicators To Know

  3. What is the average salary for an accountant?
    Personal Finance

    What is the average salary for an accountant?

  4. Lognormal and Normal Distribution
    Fundamental Analysis

    Lognormal and Normal Distribution

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center